Tuesday, May 27, 2008

Semper Fidel?


Alex Davidson 03.24.08

One day Castro really will be gone, and so will his brother, Raúl, and the whole junta. That 50-year-old fantasy of flying into Havana like Sky Masterson and getting your girlfriend drunk at El Café Cubano won't be a dream anymore. Yet Cuba is potentially so much more than casinos and luxury hotels, cruise lines, cigars and condos. The island of 11 million souls is an untapped wilderness of human capital.

"Cuba has already transitioned to a knowledge-based economy," says Johannes Werner, editor of Cuba Trade & Investment News, a monthly run out of Tampa. The nation has the leading high school enrollment in the region (86% of teens, compared with an average 69%) and the highest literacy rate (99.8%, says the CIA). Look a little closer, and there are tantalizing opportunities for U.S. investment in such areas as biotech, information technologies and basic industries. Someday.

The island claims to have 10,000 scientists--on a per capita par with China, Brazil and Mexico--1,245 of them at Havana's Center for Genetic Engineering & Biotechnology, the largest of the nation's 53 biotech labs. Over the last decade Cuba has thrown $1 billion into this fledgling industry. But it pays dividends, as it were: Last year pharmaceutical exports ranked fourth, after nickel, sugar and tobacco, taking in $162 million. Foreigners are already part of the game. GlaxoSmithkline and Cuba have distributed a bacterial meningitis vaccine. Heber Biotec SA, the commercial arm of the biotech center, produces interferons for China, while Cimab SA, the for-profit outgrowth of Cuba's Center for Immunology, has partnered with India's Biocon Pharmaceuticals to produce anticancer monoclonal antibodies in Bangalore. There are thousands of doctors serving Venezuelans in exchange for 92,000 barrels of oil a day. Imagine bringing a fraction of them home for a new gig in, say, surgical tourism.

On the computer front Cubans have been very enterprising. While they can't readily access Microsoft programs, they've designed their own e-office suites, and a few brave geeks and dissidents have found ways to link to the Web (mostly from universities). Thanks, in small part, to the 2002 launch of the University of Informatics Sciences, there are now 10,000 computer science students working inside and out of Cuba (mostly in Mexico and Venezuela). Once a joint project with Venezuela is completed next year, Cuba's slow and costly satellite Internet connections will be dumped in favor of a fiber-optic link to the outside world--which could, perhaps, as a result, force a small fissure in the military dictatorship. Canada's Sentai Software Corp. and Indcom Trading outsourced work to CubaSoft Solutions, a wing of the Castro government.

Down the road there could also be opportunities in manufacturing. Cubans are making televisions and refrigerators for China's Haier. They've been putting their excellent automotive skills to use, not only keeping all those 1955 Chevys running on their crumbling streets but also making vans for Brazil's Busscar. A deal is in the works for Cubans to start assembling buses for Yutong Group of Zhengzhou, China.

Now, to break the spell. The U.S. won't be lifting the embargo anytime soon. The next President may liberalize travel to Cuba or allow another industry or two to qualify for legal export, as food companies like Archer Daniels Midland have done since 2003. Anything else is too politically difficult.

Raúl Castro may be something of a pragmatist, but he will never steer Cuba toward democratic capitalism. He may bring back a few tiny reforms that Fidel introduced in the mid-1990s, then killed: permitting small family businesses like restaurants and basic trades and allowing the use of the dollar in special circumstances. No one knows whether Cuba will eventually back into capitalism while retaining tight political control, as China and Vietnam have done, or suddenly collapse into frightening chaos.

Today Cuba is a tough place to do business. The regime keeps 51% equity stakes in joint ventures with foreign companies, and the lion's share of profits. Hiring an employee is an exercise in nightmarish bureaucracy and outright thievery: You might have to pay $1,000 or so a month for a sales rep who sees only half that sum. The average annual per capita income for Cubans is $4,500.

Some Cuba watchers believe that even postembargo the best bet for American companies is to avoid investment altogether. "A much lower risk strategy will be to recruit in Cuba and relocate the personnel to the U.S. or elsewhere," says José Azel, senior research associate at the Institute for Cuban & Cuban-American Studies at the University of Miami. Open the prison gate a crack--and watch a flood of Cubans head north.

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